Short and Intermediate Term Financial Planning

1. Short and Intermediate Term Financial Planning January, 2010

2. The Perfect Storm • A worldwide financial crisis and an already weak state • Significant long-term financial challenges for the state • An overextended institution with limited cash • Facility and other costs that can not be deferred How do we best move forward in a way that protects our institution?

3. Budget ContextScope of State Budget Problem • Without a tax increase, the State’s structural budget deficit is $5 billion or more. • Tax revenue continues to decline • State has mandates (debt service, Medicaid) & costs that grow in economic downturns (unemployment, health care, social services) • State has backlog of unpaid bills lead some to characterize State budget problem as an $11 billion shortfall Source: Commission on Government Forecasting and Accountability Page 3

4. Budget ContextStatus of FY10 State Budget • Short-term solutions will get us through at least part of year. Super-majority required to approve revenue increases now. • Stimulus funds ($45.5m) used in University appropriation. • Risks to campus: indirect appropriations ($30m+), growth since FY08 ($11m) & benefits($$$$) • The State is 150+ days behind on payments – a great risk to our institution

5. FY 2010 Budget Outcomes • On the surface things look good: • No GRF Reductions • Cost Increases – 1.7% reallocation • Significant growth in tuition revenue • However, significant mid-year risks: • State revenues continue to decline • Shortfall may require action at any time • Possible passing of benefit and other costs on to campus.

6. State of Illinois Longer-term Financial Issues

7. State Support Per Tuition DollarFY 1970 to FY 2009 12.8 to 1 8.6 to 1 4.5 to 1 2.9 to 1 1.5 to 1 1.4 to 1 1.3 to 1 1.2 to 1 1.1 to 1 FY02-09 excludes health insurance re-direction to CMS.

8. State Tax AppropriationChanges by Agency In Constant 2008 Dollars (CPI) Elementary/Secondary 18.6% 12.0% Human Services 3.7% State Average Higher Education -24.1% -32.0% All Other FY02 - FY09 exclude $45 million from higher education for Health Insurance payment to CMS.

9. State of Illinois Debt(Dollars in Billions) (Dollars in Billions) $71.3 Pension Debt $27.5 Bonded Debt Page 9

10. Real Gross Domestic Product by State1997 – 2008(Millions of Chained 2000 Dollars) *Average of top five performing states. Source: U.S. Bureau of Economic Analysis.

11. Stimulus Funding:Short-term help; Long-term risk Operating • $45.5m shortfall in FY10 University budget funded with stimulus funding • State can’t cut FY10 operating below FY08 • These stimulus funds gone in FY11; state must have new revenue to cover Stimulus Grants • Research funds provide 2 year opportunity • Federal deficit may not allow indefinite funding

12. Summary of State Financial Issues • Uncertainty regarding taxes • ISAC funding cut by > 50% Restored but not funded • State is 180+ days behind on payments to the University • Stimulus funding runs out this year • Rumors of benefit charges to university • Pension system dramatically underfunded Total risk to campus is many tens of millions of dollars!

13. Campus Financial Challenges

15. Deficits — Improved in FY09;Progress Still Required • Utilities • University-wide funding hid size of deficits • Annual budget now fully funded • Cumulative deficit of $90m • Campus Reserves • Long-term commitments use most of reserve • Growth in utilities did not allow new funds to be directed to reserve • Annual commitments beyond funding • Unit Deficits

16. Planning Constraints • Revenue • State Funds—declining industrial base; significant unfunded retirement costs • Tuition—One of the highest cost publics; cost growing beyond capacity to pay • Expense • Personnel—80% of total costs • Utilities—significant cost growth in recent years. Facilities still require investment • Financial Aid—major investment required

17. Planning Constraints (cont.) • Buildings/ Maintenance • State stopped supporting facilities in 2002 • Campus stepped up to cover desperately needed remodeling and facilities • Deferred maintenance of $550 million! • Below average $ per square foot to maintenance—and it shows!

18. Planning Issues (strengths) • High quality faculty, students & staff • Improving financial control & health • Fee support for facilities & Library/IT • Stabilized utility costs—both price & conservation • Good state capital budget • Aggressive pursuit of stimulus grants

19. How Do We Respond?

20. First Steps: Unit Financial Control • Eliminate Deficits—we need to move quickly. Most recurring deficits resolved this year. • Raise Cash—delay hires and purchases. 4.5% of college budgets set aside in special accounts

21. Some Actions Taken Centrally • Hiring plans required again this year; hires must be limited • Initiatives stretched over a multi-year period; a review of funding for all recent initiatives • Increased vigilance regarding unit finances • Administrative reduction program goes forward: > $1.2m this year • Establishment of advisory groups

22. These steps will not be enough . . . . . . We need to move beyond belt-tightening and take a deep look at our institution How do we move forward in an era of declining resources?

23. Meeting the Challenge Initial Steps Identifying Opportunities Deploy Teams Implement Plans Through Dec. Jan.– mid-Feb. Feb.- March March- Communicating scope of problem College planning Cost reduction Forming Teams Broader Communicating Review college plans Identify areas for review Review teams charged Specific unit reduction targets Brief reviews completed Review revised plans Bridge plan completed

24. What We Have Done So Far • Communication and Planning • Kickoff meetings with all colleges to outline scope of problem • College planning efforts to address reductions • Aggressive cost reduction • First stage of administrative reductions—$1.3m in savings • Accelerated energy conservation efforts—millions in annual savings • Increased financial oversight and reduced deficits

25. What We Have Done So Far (cont.) • Formed central teams • Steering Committee—4 deans, 1 VC, 1 faculty • Campus Advisory Group—13 faculty & APs • Implementation Team—9 campus admin. staff • System-wide Administrative Review Committee • Exploring next steps for strategic procurement, IT efficiencies & service centers • Review administrative structure for possible streamlining

26. Project Structure Bob Easter Chancellor Dick Wheeler VC Academic Affairs Campus Advisory Group Senate Budget Committee Steering Team Deans of LAS, AHS, ACES, Grad College; VC Student Affairs; VC Academic Affairs; two faculty; staffed by Provost’s Office Implementation Oversight Team VC Academic Affair, VC Public Engagement, Dean of LAS, Assoc, Chancellor Public Affairs, Chancellor’s and Provost’s Staff

27. Steering Committee • Deba Dutta—Graduate College • Bob Hauser—ACES • Tanya Gallagher—AHS • Linda Smith—GSLIS • Ruth Watkins—LAS • Tony Liss—Physics

28. Campus Advisory Group • Elabbas Benmamoun—Linguistics • Ralph Brubaker—Law • Deba Dutta—Grad College & Engineering • Rayvon Fouché—History • Scott Irwin—ACE • Tony Liss—Physics • Jim Lisy—Chemistry • Edward McAuley—Kinesiology • Curtis Perry—English • Kim Shinew—Recreation • Linda Smith—GSLIS • Ginger Winckler—VM

29. Discussion